Nairobi — Equity Group has registered a decline in profit after tax by 14 percent to Sh5.3 billion in the first quarter of the year, attributable to a tenfold increase in its loan loss provision to Sh3 billion. A year earlier, its provisions on loans were Sh300 million.
In a statement, Dr. James Mwangi, Group Managing Director and CEO, said the global COVID-19 pandemic had introduced unprecedented uncertainty within the global financial systems prompting the bank to adopt a conservative approach. As such, the bank has had to fortify its balance sheet and assuring ample liquidity to support its customers.
The Group's total assets registered a 14 percent year on year growth to Sh693.2 billion from Sh605.7 billion driven by a 17 percent growth in customer deposits to Sh499.3 billion from Sh 428.5 billion.
Net interest income grew by 11 percent on the back of a 24 percent year on year growth on loan book to Sh379.2 billion up from Sh305.5 billion, which reflected strain with the non-performing loan book growing to 10.9 percent up from 9.1 percent the previous year.
Aggressive provisions saw the cost of risk rising to 3.24 percent up from 0.37 percent.
The Group's total income grew by 13 percent to Sh19.7 billion up from Sh17.5 billion for the same period last year. Non-funded income grew by 16 percent outpacing the 11 percent growth on net interest income thereby increasing its contribution to 42 percent of the Group's total income.
Forex trading income grew by 34 percent to Sh1.1 billion up from Sh 815 million with 26.5 percent of the volume traded contributed by diaspora flows. Diaspora remittances commissions grew by 22 percent to Sh234 million up from Sh192 million the previous year with the volume of diaspora remittances growing by 31 percent to reach Sh40.6 billion up from Sh30.9 billion the previous year.
Merchant banking commission grew by 11 percent to Sh582 million up from Sh523 million the previous year with Merchant banking volume reaching Sh29 billion up from Sh25.6 billion.
Mwangi said the group is still registering progress in transforming itself from the place you go to something you do on devices. As such, the brick and mortar infrastructure of branches and ATMs processed only 6 percent of the Group's banking transactions, while mobile and internet banking processed 79 percent of all transactions, with agents and merchants processing 15 percent of transactions making the Group an increasingly virtual digital financial service provider.
The Group's regional and diversification subsidiaries continued to register impressive results with a return on equity of 18.7 percent against the Kenyan banking subsidiary return on equity of 21.6 percent.
The subsidiaries increased their total revenue contribution to the Group's revenue to 30 percent up from 28 percent the previous year, while raising their contribution of profit before tax to 26 percent of the Group's profit up from 17 percent.
The Group stands well positioned to confront the challenges of the COVID-19 disruption that is mutating into an economic, financial, and humanitarian crisis. The Group's business model of high-volume low margins with nonfunded income contributing 42 percent of total income and a low cost of funding of 2.8 percent, allows the Group to ride a compression of margin in interest-earning assets.
A well-diversified and distributed portfolio of Equity's loan book across sectors of the economy and segments of clients helps to mitigate loan quality shocks.
A strong Group liquidity position of 51.6 percent and strong total capital to risk-weighted asset buffer of 19.5 percent against a low loan to total assets ratio of 55 percent places the Group in a strong position to adequately handle the economic and financial challenges of the COVID-19 global health pandemic.
This position is further enhanced by an agile liquid balance sheet with cash and cash equivalents of 38 percent of total assets and long-term funding of shareholders' funds and long-term debts constituting 23 percent of the total assets, places the Group in a strong strategic position to respond to and adeptly handle challenges associated with a rapidly changing and uncertain environment.
In addition, Equity Group Holdings Board has taken a conservative approach that recognizes the emerging unquantified risk of the pandemic and opted to preserve capital in the face of the prevailing uncertainty. As a result, the Board of Directors has withdrawn its recommendation of a Sh9.5 billion dividends pay out to its shareholders for the 2019 financial year.
"A strong capital and liquidity position gives us the strength and capacity to cushion our business against external shocks and accommodate and walk with our customers during these challenging times," said Dr. James Mwangi.
He added that Equity has restructured customers' loans of up to Sh 92 billion for up to three years as an economic relief effort to the COVID-19 crisis.
"We will walk with our clients through this crisis and will give every client a chance to turn the crisis into an opportunity to thrive. Equity Group will deploy its capital strength, balance sheet agility and liquidity to support a long-term view," said Dr. Mwangi.
The Group continues to make social and impact investments to support society and build brand love under a shared prosperity business model. To date, the Group together with its development partners have invested US$433 million in education scholarships, agriculture transformation, health, energy, leadership development and business services along with capacity development for micro, small and medium enterprises and entrepreneurs.
"A strong corporate brand, an agile liquid balance sheet, a well segmented and diversified asset portfolio and a well-balanced risk management policy places the Group strongly to weather market challenges, support our customers not only to survive but to recover and thrive, emerging from this crisis stronger," said Dr. Mwangi as he released the first quarter of 2020 financial performance results.